What is estate planning?

What is estate planning?

Estate planning involves developing a strategy to deal with your assets and investments when you pass away. Its aim is to provide peace of mind for you and your loved ones when you die, ensuring that your assets are passed on to your beneficiaries in the most simple and effective way.

One of the key tasks of estate planning is preparing a will. Your will provides the instructions on how your assets are to be distributed among your nominated beneficiaries, but it's far from the only thing you need to consider.

How is estate planning different from my will?

While a will is a significant part of estate planning, it's just one piece of the puzzle. A will tells people how to divide your assets after you pass away, who should receive them, and the share each beneficiary gets.

Estate planning looks at the bigger picture of your end of life matters. It helps you prepare for various scenarios during your life and after. This includes planning your health if you get sick, deciding who looks after your kids, and maximising the value of your assets when they go to your beneficiaries. An estate plan can also set up trusts to control when your beneficiaries receive their assets and manage your remaining super balance. This is not something a basic will can do.

How do I start estate planning?

Broadly, the estate planning process can be broken down into the following steps:

1. Take stock of your assets. Create a list of all your personal assets, as well as other assets that form part of your estate (trusts, superannuation, life insurance etc.).
2. Identify risks. Identify any potential risks you want to plan around before and after your death, such as divorce, mental incapacity or your early death.
3. Creating a plan. You can now work with a financial planner to work out an estate plan that is tailored to your needs and incorporates all your assets.

For help developing a comprehensive estate plan that covers all necessary issues, it’s generally recommended that you seek independent legal advice.

What are the components of estate planning?

A comprehensive estate plan will usually include a few important components, including:

• Will: A legal document that outlines who and where your assets should go when you die. You also name an executor, who is someone you trust to make sure your wishes are followed and to manage your estate.

• Power of Attorney: This lets you choose someone to make decisions for you if you pass away or can't do it yourself. This person can handle financial matters, sign papers, and take care of your affairs.

• Enduring Guardianship: This document lets you appoint someone to make choices about your health and personal care if you can't speak for yourself. An enduring Guardian will decide where you live and what medical care you get.

• Guardianship of Minor Children: You can name a guardian to look after your kids if and when you no longer can.

• Advance Care Directive: Also known as a living will, this details what kinds of care you want or don't want. It helps your doctors and family understand your preferences if you no longer have the ability to.

• Trusts: With a trust, you can decide how and when your beneficiaries receive your assets. This is especially useful for kids or anyone who may not manage money well. Trusts can also offer tax benefits and maximise the value of your assets.

• Superannuation: You can choose the beneficiaries of your super balance and how it's distributed among them.
• Funeral arrangements: This tells your family what you want for your funeral. You can specify if you prefer a burial or cremation, and any other wishes you have for your farewell.

How do I start estate planning?

Broadly, the estate planning process can be broken down into the following steps:

1. Take stock of your assets. Create a list of all your personal assets, as well as other assets that form part of your estate (trusts, superannuation, life insurance etc.).
2. Identify risks. Identify any potential risks you want to plan around before and after your death, such as divorce, mental incapacity or your early death.

Creating a plan. You can now work with a financial planner to work out an estate plan that is tailored to your needs and incorporates all your assets.

When should I update my estate plan?

Estate planning shouldn't be something you just do once and forget about. It should be updated over the course of your life to reflect your changing circumstances and relationships. It's a smart idea to review and update your estate plans in these situations:

• Getting married or divorced: Major changes in your relationship status can impact who you want as beneficiaries or guardians for your kids.

• Having kids: If you welcome a child, you'll want to include them in your plans and make decisions about Guardianship and how your assets are shared.

• Change in financial circumstances: If gain or lose a significant amount of money, you may need to rethink your estate plan to make sure it fits the assets that will be available if you pass away.

• Death of a loved one: If someone you've named in your plan passes away, you'll need to choose new beneficiaries for any assets or a new executor if they were one originally.

Changing tax laws: Laws and tax implications can always shift, so it's important to stay updated. This way your estate plan stays tax friendly and meets all legal requirements.

How a professional can help with estate planning

A professional can help you work out the finer details of creating a solid estate plan. They can help structure your plan, understand the tax implications of certain choices, and make sure everything complies with legal requirements. This can include helping you maximise the benefits for your beneficiaries by finding the most tax efficient way to distribute your assets.

If you have any concerns like the financial responsibility of your beneficiaries, a financial adviser can help you set up a trust. These give you greater flexibility over how your assets are shared with your loved ones.

Frequently asked questions

• What is the objective of estate planning?

  The goal of estate planning is to make sure your wishes regarding your assets and precious belongings are followed after you die. It involves the strategy around how they're distributed or shared, who will receive them, and maximising the total value of your estate when it comes to things like tax.

  It also helps you prepare for different scenarios, including any arrangements for your health if you're sick, who takes care of your kids, and how your assets are managed during your life and after. This way, your wishes are honoured when you're no longer able to, and your loved ones aren't left guessing or facing tough decisions during difficult times.

• At what age do most people do estate planning?

  There's no set age for, but many people start to think about it in their late 20s or early 30s, especially after a major life event like marriage or having kids.

• What is the difference between an estate planner and a financial planner?

  An estate planner focuses on preparing for what happens to your assets after you've gone. A financial planner helps you manage your finances during your life, including investments and saving for retirement.

Written by

Cameron Thach

Writer

With a background in writing across education, Web3, and finance, Cameron’s mission is to create content that speaks directly to readers in a way that’s easy to understand, helping them navigate complex topics with confidence. Cameron studied a Bachelor of Commerce, Economics and Marketing at Macquarie University, graduating in 2019. See full bio